Roth IRA Conversion Conundrum

Document Sample
Roth IRA Conversion Conundrum Powered By Docstoc
					                                                                                                                                1
                                                                                                                                       Independent Financial
                                                                                                                            #          Advisor in the Nation
                               RIC EDELMAN’S                                                                                           Ranked by Barron’s†



                                      Roth IRA
                                       Conversion Conundrum                                                                                               ††




                                                                                             A SPECIAL REPORT UPDATED JANUARY 2011



You Can Convert Your IRA to a Roth
 But should you?


I
   n 2010, Congress began letting everyone convert their                                believe that conversion is necessarily in everyone’s best
   Deductible and Non-Deductible IRAs to a Roth IRA. (Pre-                              interests. Let’s examine the notions involved with convert-
   viously, conversions were limited to those with Adjusted                             ing your IRA to the Roth.
Gross Incomes of less than $100,000.)
                                                                                        Conversion Notion #1: It Makes Sense If Your Current
Converting is alluring. If you don’t convert, you’ll pay taxes                          Tax Bracket Is Low.
when you make withdrawals in retirement. And you must                                   Some people are temporarily in a low tax bracket. This
start making those withdrawals in your early 70s. But with-                             can be caused by a variety of reasons: divorce, job loss,
drawals from Roth IRAs are tax-free, and there’s no require-                            temporary work assignment (such as in a tax-free
ment to begin withdrawing money at any age.                                                                                                            continued on page 2

Those facts suggest that converting to a Roth is a no-

                                                                                        Guess Who Is Sure
brainer. But before you act, read the fine print: The money
you convert is fully taxable (which explains why future

                                                                                        to Profit from Roth IRA
withdrawals are tax-free; instead of paying the taxes later,
you pay up front).

So the choice is yours: Pay the tax now on the current bal-
ance so that future withdrawals are tax-free, or pay the tax
                                                                                        Conversions?
later when you make withdrawals from the (theoretically                                 The financial industry wins, even if you don’t


                                                                                        A
higher) balance.
                                                                                               s we approach and enter the new year, you’ll be
So should you pay now or pay later? It’s a simple question,                                    hearing more and more about the idea of convert-
but as with so many issues in the field of personal finance,                                   ing your IRA to a Roth IRA. The idea, though, is not
the answer requires substantial analysis. Getting it wrong                              necessarily good for you. So why all the hubbub?
could cost you tens of thousands of dollars in unnecessary
and premature taxes, and many tens of thousands more in                                 Simple: The idea is terrific for the financial services industry.
lost wealth.                                                                            Wall Street brokerage firms, mutual funds and insurance
                                                                                        companies all stand to profit immensely from consumers
While my colleagues at Edelman Financial and I agree with                               who convert their IRAs to Roths. Ditto for stockbrokers,
all those who say that the Roth Conversion Conundrum                                    insurance salesmen and financial advisors. Many in the
is a timely issue that investors should address, we do not                                                                                            continued on page 7



†
  Barron’s ranking “Top 100 Independent Financial Advisors” (Aug. 28, 2010 / Aug. 31, 2009) based on the quality of the advisors’ practices, including client retention and
compliance record, contribution to the firm’s profitability, and the volume of assets overseen by the advisors and their teams.
††
     Try saying that 10 times fast!

                                               Edelman Financial Services          RicEdelman.com          888-PLAN-RIC                                                      1
RIC EDELMAN’S SPECIAL REPORT: ThE ROTh IRA CONvERSION CONUNDRUm


You Can Convert Your IRA to a Roth    continued from page 1



hazardous zone), high and sudden (but short-term) medi-                                         Conversion Notion #6: It Could Require You to File
cal expenses and more. If you are currently in the 15% fed-                                     Estimated Payments.
eral income tax bracket or less and have reason to believe                                      The IRS expects you to pay your taxes in the calendar quar-
that your income will rise in future years, placing you in a                                    ter in which you earn the money. Ordinarily, this is handled
higher bracket, converting now makes sense.                                                     for you by your employer (through payroll deductions). But
                                                                                                if you convert a large IRA, you could be required to file IRS
Conversion Notion #2: It Could Increase Your                                                    Form 1040-ES quarterly, making payments each quarter. If
Children’s Inheritance.                                                                         you don’t, you could incur interest and penalties.
By converting your IRA to the Roth, you pay the taxes now.
If you want your children or grandchildren to inherit the                                       Conversion Notion #7: You May Not Know How Much
account when you die, they’ll receive the money without                                         in Taxes You Owe Until Next Year.
having to pay income tax. With proper estate planning,                                          Surprisingly, if you own both Deductible and Non-De-
their inheritance can be increased substantially compared                                       ductible IRAs and you convert only the Non-Deductible
to a traditional IRA. Of course, this Roth Conversion feature                                   IRA, you won’t know how much you owe in taxes until
is of primary value to your heirs, not you.                                                     next year. That’s because the IRS considers conversions
                                                                                                to consist proportionately of each type of IRA you own.
Conversion Notion #3: It Could Increase Your Federal                                            Let’s say you have $100,000 in IRAs — $40,000 in after-tax
Income Taxes.                                                                                   contributions and $60,000 in pre-tax contributions. To
If you’re in a low tax bracket, be aware that converting                                        determine how much of the conversion you’d have to pay
could push you into a higher bracket — and possibly even                                        taxes on, you divide the pre-tax amount in the account by
the highest bracket of 35%. That’s because the amount you                                       the total ($60,000/$100,000 = .60). Thus, you would have
convert is added to your taxable income. So if you earn                                         to pay taxes on 60% of any money you convert. So if you
$20,000 and you convert a $200,000 IRA to the Roth, your                                        decide to convert $40,000, you’d pay taxes on $24,000. At
income is now $220,000 — putting you in the 33% income                                          an ordinary tax rate of 28%, that’s $6,720.
tax bracket. This would affect your overall taxable income,
not just the dollars involved in the conversion.                                                But this calculation is based on the year-end value of your
                                                                                                IRAs — including the money you converted — not their
Conversion Notion #4: It Could Increase Your State                                              value on the day you converted. So if your account increas-
Income Taxes.                                                                                   es in value by year-end (or if you rollover a pre-tax 401(k)
If you live in a state with an income tax and you convert,                                      into an IRA) you might pay more in taxes than you expect.
you’ll owe state taxes. If you later move to a state that has
no income tax and convert then, you’ll avoid that state                                         Conversion Notion #8: It Doesn’t Necessarily Increase
income tax.                                                                                     Your Wealth.
                                                                                                Conversion is revenue-neutral; whether you convert or not,
Conversion Notion #5: It Could Cause You to Pay a                                               your future account balance (after taxes) will be the same.
10% IRS Penalty.                                                                                Don’t believe me? Here’s the math: Say your Deductible IRA
Say you convert a $100,000 IRA to the Roth, causing you                                         has $100,000 and it doubles between now and retirement,
to owe $35,000 in federal income taxes. Are you able to                                         to $200,000. You then withdraw the money, paying 35%
pay the tax from earned income or money held in other                                           in taxes. That’s $70,000, leaving you with $130,000. But
accounts? If you use money held in the IRA, and if you’re                                       instead, let’s say you convert your current IRA of $100,000
under age 59½, you’ll owe a 10% IRS penalty in addition to                                      to the Roth. You pay 35% in taxes on the current balance.
the tax itself. That’s an additional $3,500. (And we haven’t                                    That’s $35,000, leaving you with $65,000. This amount then
mentioned state taxes — paying those from the IRA could                                         doubles so that by retirement you have $130,000 — and all
further increase your taxes and IRS penalties.)                                                 withdrawals are now tax-free. So whether you convert or

                                                                                                                                               continued on page 3



* Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific investment.



                                                   Edelman Financial Services              RicEdelman.com            888-PLAN-RIC                                    2
                                                             RIC EDELMAN’S SPECIAL REPORT: ThE ROTh IRA CONvERSION CONUNDRUm


You Can Convert Your IRA to a Roth   continued from page 2


not, you end up with the same amount of money. The only                         you no value. In other words, you might actually be better
difference is that one strategy has you pay $35,000 in taxes                    off financially by having some taxable income rather than
now, while the other has you pay $70,000 later. But the net                     100% tax-free income.
after-tax value is the same.
                                                                                Conversion Notion #12: It Could Cause Your Taxes to
Conversion Notion #9: The Amount of Wealth                                      Rise Even Further.
Enhancement You Expect to Get Depends on Your                                   In the year you convert, your income rises. That creates the
Tax Rate Assumptions.                                                           risk that you might lose some or all of your personal exemp-
Of course, the above assumes that your current tax rate                         tions and itemized deductions — and some (or more) of
stays the same — and that’s quite an assumption. If your                        your Social Security benefits may become taxable as well.
future tax rate is higher, then you benefit by converting and                   All this could cause your tax bracket in the year of conver-
paying taxes at today’s lower rate. And the higher you think                    sion to be even higher than you anticipate.
your future tax rate will be, the more you benefit by con-
verting. Likewise, if you think your future rate will be lower,                 Conversion Notion #13: Converting at the Wrong Time
converting reduces your future wealth.                                          Could Cause You to Pay More Taxes Than Necessary.
                                                                                A lot of people who converted their IRAs in early 2008 later
Don’t be so sure that your tax rate in retirement will be                       regretted it. Because of the economy, many people dis-
higher than it currently is. Although President Obama has                       covered that their account values were lower at the end of
stated that he plans to increase tax rates, any such changes                    the year. But if you converted in January 2008, you had to
are irrelevant unless you plan to withdraw money from                           pay taxes based on the value of the account at that time —
your IRA during his term in office. If you are retiring in 20                   even though the account might have been worth 40% less
years, President Obama’s tax law will be as outdated (and                       12 months later.
irrelevant) as Jimmy Carter’s is today. Thus, all assumptions
about future tax legislation are sheer speculation — hardly                     To protect you against the risk that the account might drop
justification for making a sound financial decision.                            in value shortly after you convert, tax law allows you to
                                                                                “recharacterize” your account. In other words, you get to
Conversion Notion #10: It Could Increase Your                                   “unconvert” your IRA from the Roth back to the Deductible
Medicare Premium.                                                               or Non-Deductible IRA you originally held. You must do
If you are covered by Medicare, your Part B premium is                          this no later than the extended due date for the tax year in
based on your income. Converting increases that income                          which you converted. After you recharacterize, you can then
(if only for a year or two), which could add hundreds of                        convert all over again — this time at the new lower market
dollars to your monthly Medicare costs.                                         value. And you must wait until the later of (a) the beginning
                                                                                of the year following the year in which the amount was
Conversion Notion #11: It Could Cause You to Pay                                converted or (b) the end of the 30-day period beginning on
More in Taxes Than You Should.                                                  the day you transfer money from the Roth back to a tradi-
Some investors do everything they can to reduce their                           tional IRA.
income taxes. They save all their money in IRAs, employer
retirement accounts, tax-free municipal bonds — and the                         Here’s an example: Say your Deductible IRA owns stock
Roth IRA. By converting their IRAs and employer accounts                        mutual funds and on January 1, 2008, they were worth
to the Roth, they are able to generate income in retirement                     $300,000. You convert, owing $120,000 in taxes. A year
that is 100% tax-free.                                                          later, due to the economy, your stock funds are worth only
                                                                                $180,000. You still owe $120,000 to the IRS — leaving you
But avoiding taxes so completely isn’t necessarily a good                       with a paltry $60,000.
result. That’s because the tax code offers a variety of tax
deductions, such as the standard deduction, plus deduc-                         So you recharacterize. This turns your account back into a
tions for mortgage interest, real estate taxes, charitable                      Deductible IRA. It’s worth $180,000 (due to the market’s de-
contributions, being older than 65 years of age and other                       cline). You convert all over again — and this time, you owe
reasons. If all your income is tax-free, these deductions offer                 taxes of just $72,000 (assuming the same tax bracket as in
                                                                                                                     continued on bottom of page 4




                                                 Edelman Financial Services   RicEdelman.com   888-PLAN-RIC                                          3
You Can Convert Your IRA to a Roth continued from page 3




the above calculation). Recharacterizing has just saved you                                  part of an annuity, you are essentially splitting off part
$48,000. Powerful, eh?                                                                       of your annuity to create a new IRA. This sounds simple
                                                                                             enough, but breaking off a piece of the annuity is the same
While it’s always possible that the stock market might                                       as making a withdrawal. Depending on your annuity, a
decline 38% in a single year (like it did in 2008), it’s unlikely                            premature withdrawal could trigger the annuity to lock
that you will place your entire Roth IRA into stocks. It’s more                              in a living benefit payout percentage earlier — and there-
likely that you will diversify among a variety of asset classes.                             fore much lower — than you had expected or planned. It
It’s also likely that some of those asset classes will perform                               could also cause the annuity to stop providing guaranteed
better than others. It’s possible that some might even lose                                  growth.
money.
                                                                                             Conversion Notion #15: The Money You Convert
Therefore, you might find yourself wanting to recharacterize                                 Becomes Untouchable for Five Years.
some of your money, but not all of it. If all your investments                               When you make a direct contribution to a Roth IRA, you
are held in a single Roth IRA, you can’t. Thus, you’d have                                   can withdraw that money at any time without penalty.
to create multiple Roth accounts — one for each of your                                      The earnings, however, must stay in the account until you
investments. If you have 20 stocks, you’ll need 20 Roth IRAs.                                are 59½ — or you’ll incur ordinary income tax rates plus a
If you have 10 mutual funds, you’ll need 10 Roths.                                           10% penalty.
Also, you should automatically place yourself on extension                                   The rules for Roth IRA conversions are different. If you con-
for the tax year you convert to a Roth, being sure to pay any                                vert money to a Roth IRA and are under age 59½, you can’t
taxes owed by April 15.                                                                      withdraw the rollover contributions for five years. If you
These two approaches — establishing separate Roth IRAs                                       do, you’ll face a 10% penalty. (The rules for distributions of
and filing an extension — will grant you maximum flexibil-                                   earnings are the same as with direct contributions.) There
ity to recharacterize a given asset if needed. But it will also                              are exceptions for medical expenses, first-time homebuyers,
exponentially increase your paperwork and record-keeping                                     disability, and higher education. And each conversion has
obligations, as well as increase your costs if you pay annual                                its own five-year holding period.
custodial fees for each IRA account.                                                         Conversion Notion #16: It Could Impact Financial Aid
So if you don’t isolate each holding in a separate Roth IRA,                                 for Your College Student.
you might later wish you had done so. And if you do, you                                     IRAs aren’t included among your assets when a college
might later wish you hadn’t. Time will tell.                                                 calculates a financial aid package. However, when you con-
                                                                                             vert to a Roth IRA, the money shows up on your tax forms
Conversion Notion #14: If You Have an Annuity in Your                                        as income for that year. If your income is artificially inflated
IRA, Things Get Complicated.                                                                 when you fill out financial aid forms, you’ll have to explain
Your tax obligation isn’t limited to the cash value of the                                   the situation to the school, and they may or may not take
contract. Instead it’s determined by the fair market value of                                that information into consideration.
the annuity, which is the cash value of the contract on the
day you convert plus the actuarial net present value of any                                  Conversion Notion #17: Not All Funds Can Be
living or death benefits. (Your insurance company can cal-                                   Converted.
culate your present net value for you.) For example, if your                                 Inherited IRAs, required minimum distributions, 72(t) pay-
annuity has a cash value of $50,000 and the death benefit is                                 ments, hardship distributions, corrective distributions of
worth $200,000, you’ll owe taxes on $250,000.                                                excess deferrals, deemed deferrals and dividends from
                                                                                             employer securities cannot be converted. ❖
Take extra care if you are only partially converting your
variable annuity. When you convert an entire annuity, the
annuity itself remains intact. But when you convert only


EFS does not provide tax advice. Information regarding tax matters is of a general nature only, and is not to be construed as constituting specific advice. EFS recommends that clients
consult a tax advisor for advice concerning tax issues.




                                                  Edelman Financial Services             RicEdelman.com            888-PLAN-RIC                                                      4
RIC EDELMAN’S SPECIAL REPORT: ThE ROTh IRA CONvERSION CONUNDRUm




Should I Convert to a Roth?
Ric gives these case studies a thumbs-up or thumbs-down


Q     Let’s say I have $250,000 in an IRA. If I convert it when
      the new rules take effect, I’m going to pay taxes at the
highest tax bracket, correct? But if I don’t convert and wait
                                                                        Converting all your money into tax-free accounts might
                                                                        not be in your best interests.

20 years until I retire, I’ll only take out 5% per year, or about       Of course, it also depends on whether you believe your
$1,000 per month, to support my income. I’d like to hope that           future tax bracket will be higher than the tax bracket you’re
the tax rate for $12,000 in 20 years is less than the rate on           in when you convert.
$250,000 today. Therefore, I do not plan to convert. Am
I right?
                                                                                          Q      I’m thinking about converting my
                                                                                                 traditional IRA of $300,000 to a Roth

A     You may or may not be in the                                                        IRA and paying the taxes now. The reason
      highest tax bracket, which is 35%                                                   I’d do this is to reduce the possible tax
in 2011 and begins with taxable                                                           liability and other complications for when
income above $379,150. While                                                              my four children inherit it. I’m 71 — what
I can’t say for sure that you                                                             do you think?
will be correct, I do agree
with your thought process.
If I were you, I’d take the                                                               A     It’s probably a bad idea. If you con-
                                                                                                vert the $300,000 in your IRAs into
                                                                                          a Roth IRA, you will pay taxes now on all
same approach.
                                                                                          the money, probably at the top bracket

Q     I was talking to someone                                                            of 35%. However, when your children
      at the bank, and he said                                                            get their inheritance, they will each get
that if I convert my entire IRA to a                                                      only a quarter of that money — and with
Roth IRA, all my retirement income                                                        proper estate planning, they can pay
will be tax-free. It sounds like a great plan. Should I go for it?      the taxes due over the course of their lifetimes. It’s quite
                                                                        possible that they will pay taxes at a much lower rate than

A     If all your retirement income is tax-free, you suffer
      from a “lost opportunity cost” if you continue to have
                                                                        what you’d pay now.

tax deductions. For example, say you have a 6% mortgage.
That loan is tax-deductible, which reduces its cost for                 Q    If my IRA is worth less now than when I opened it, can I
                                                                             take the whole thing and dump it all into a Roth without
                                                                        any tax implications?
many taxpayers by about a third, to only 4%. But to enjoy
this savings, you must have taxable income. If you don’t,
you’ll pay the full cost of the mortgage. Ditto for medical
expenses, property taxes and other tax breaks: To enjoy                 A    Yes, if the account is a Non-Deductible IRA and it’s
                                                                             the only IRA you own, because in that case you have
                                                                        already paid taxes on the money.
these benefits, you need taxable income. Be careful before
deciding to set up all your income as tax-free.
                                                                        No, if the account is a Deductible IRA. That means you’ll
This demonstrates why determining whether it’s beneficial               pay taxes when you convert to a Roth.
to convert your account can get absurdly complicated.                                                                  continued on page 6




                                       Edelman Financial Services    RicEdelman.com   888-PLAN-RIC                                       5
                                                                       RIC EDELMAN’S SPECIAL REPORT: ThE ROTh IRA CONvERSION CONUNDRUm



Should I Convert to a Roth? continued from page 5




Q     My wife and I are both 40 years old. Our income is more
      than $180,000, so we aren’t eligible to contribute to a
Roth or Deductible IRA. We’re both employed and we max
                                                                                                           unusual — it’s rare to find a family making as much as you
                                                                                                           are without having any money in IRAs.

out our 401(k) plans, and we also contribute to a 529 plan.
I’m interested in having us contribute $5,000 each to a Non-                                               Q    I’m thinking about converting my IRA to a Roth IRA
                                                                                                                this year. I was laid off earlier this year, so our taxable
                                                                                                           income for 2011 will be extremely low, about $20,000.
Deductible IRA this year and convert it to a Roth in 2011.
We have no money in IRAs right now.

                                                                                                           A    Looks like you found the bright spot of losing your job,

A     For 2011, you can contribute $5,000 to a Roth IRA                                                         and the Roth conversion seems to make sense in your
      if your income is under $169,000 for married couples                                                 case. Since your income for this year is artificially low and
filing jointly and $107,000 for singles. You can contribute                                                           you’re anticipating getting back to work next
to a Deductible IRA if your income is under $169,000 for                                                                year (and resuming your previous income),
married couples filing jointly and you are not                                                                          converting now might make sense. But keep in
covered by a retirement plan at work                                                                                                mind that the amount you convert
but your spouse is covered.                                                                                                            constitutes income. If you file
If you are covered by a                                                                                                                     a joint tax return with your
retirement plan                                                                                                                             spouse, you’re in the 15%
at work, you                                                                                                                                tax bracket only if your
can contribute                                                                                                                                taxable income stays at
to a Deductible IRA if your                                                                                                                   $69,000 ($34,500 if filing
income is under $90,000 for                                                                                                                single) or less. Thus, you can
married couples filing jointly and                                                                                                       convert only about $49,000
$56,000 for singles. If your in-                                                                                                         and remain in that bracket; if
come is more, you might be able                                                                                                        your IRA is $200,000 and you
to contribute smaller amounts;                                                                                                       convert the entire amount, you’ll
those aged 50 or older contribute                                                                                                 pay a 33% tax even though you
an extra $1,000.                                                                                                              earned only $20,000 this year.

Assuming you are eligible to contribute,                                                                             So if your account is large, convert now only the
then proceed — and I say this only because you                                                                      amount that lets you stay in the 15% or lower tax
don’t have any IRAs at all right now. My answer would be                                                            bracket, assuming you believe you will be in a
different if you had both Deductible and Non-Deductible                                                    higher tax bracket in the future, and then convert the rest
IRAs. That’s because the IRS forces you to move money                                                      next year to allow you the chance to delay the tax bill even
from them proportionately; you can’t move Non-Deduct-                                                      further.
ible assets without also moving a portion of assets in
Deductible accounts. That, in turn, would force you to incur                                               As you can see, there isn’t a simple answer. Further analysis
taxes now.                                                                                                 is necessary to determine whether or not you should con-
                                                                                                           vert, how much to convert and when. ❖
So go ahead and contribute to the Non-Deductible IRA,
but make sure you convert the money to the Roth IRA
when the rules permit it. And know that your case is


Ric Edelman is Chairman and CEO of Edelman Financial Services LLC and Co-CEO of The Edelman Financial Group (NASDAQ: EF) and a member of its Board of Directors. he is an Investment Advisor
Representative who offers advisory services through EFS, a registered Investment Advisor. Ric is also a Registered Principal of and offers securities through Sanders morris harris Inc., an affiliated broker/
dealer, member FINRA/SIPC.



                                                         Edelman Financial Services                  RicEdelman.com               888-PLAN-RIC                                                                6
RIC EDELMAN’S SPECIAL REPORT: ThE ROTh IRA CONvERSION CONUNDRUm



Guess Who Is Sure to Profit from Roth IRA Conversions? continued from page 1


field, it seems, may view the Roth IRA
conversion as a huge opportunity to
increase their assets under manage-
ment and generate new fees and
commissions.

How so? Simple, again: Commission-
based brokers and insurance agents
could reap a fortune by getting
consumers to shift their IRA dollars
into Roth accounts. Brokerage firms,
mutual fund companies and insurers
who sell annuities all earn profits by
selling investments to consumers too.

And what about fee-based advisors?                           their businesses. Smart advisors will       are required to serve as fiduciaries —
They earn a living (like us) based on                        make the most of it.”                       meaning they must place their clients’
their assets under management.                                                                           best interests first. Instead, if the hype
The more assets under management,                            Here’s another example. I recently          surrounding the financial industry is
the more money the advisor makes.                            received mail from something called         any indication, many advisors seem to
By convincing consumers to shift                             the “Roth IRA Institute.” The envelope      be placing their own interests ahead
their IRAs (held elsewhere) to a Roth                        contained a six-page letter written by      of their clients’.
IRA managed by the advisor, the                              a CPA who trademarked the name;
advisor increases his AUM and thus                           his “institute” encourages financial        Consider that a 2009 survey from
increases his income.                                        advisors to sign up for his marketing       Fidelity Investments found that 34%
                                                             program to learn how to convince            of investors don’t understand the
No wonder the industry is pushing                            consumers to convert to the Roth IRA.       tax implications of Roth IRA conver-
Roth conversions.                                            Says the letter, “The Roth IRA conver-      sions and 28% incorrectly think that
                                                             sion is the perfect tool for selling        contributions to Roth IRAs are tax-
Want evidence? Consider the Sept-                            annuities of $100,000 or more. Of           deductible. Clearly, tax rules pertain-
ember 6, 2009, issue of Investment-                          course, this program will also attract      ing to Roth IRAs are confusing. Add an
News, a weekly newspaper directed                            less wealthy prospects, but since I         aggressive sales pitch by the industry
at financial advisors. Its headline                          make more money with the same               and…well, you wind up with an op-
and subhead read, “Using Roth IRAs                           work, I prefer going after high-net-        portunity for abuse.
to Build Your Business — Advisors                            worth clients.” The letter also says that
who target conversions … can lure                            the Roth IRA Conversion is “a great         So when you start seeing or hearing
prospects.” The article explains how                         tool to attract the right type of buyer     ads that promote Roth IRA conver-
advisors can use Roth conversions to                         of life insurance products. The truth is,   sions or seminars devoted to the
make more money for themselves,                              no matter what the financial product        topic, remember that the promoter
with no mention of whether Roth                              or service you are selling or providing,    always benefits from the idea, but
conversions actually benefit clients.                        good prospects will be attracted by         that doesn’t mean you will.
The article contains such statements                         Roth IRA conversion expertise.”
as, “The advisers who get to their cli-                                                                  Only a thorough analysis of your
ents and prospects first can position                        We consider these materials to be           situation can determine whether con-
themselves as experts, and will gain                         unconscionable. Financial advisors          verting your IRA to a Roth is in your
a competitive advantage” and “The                            are not supposed to twist changes           best interest. If an “advisor” recom-
tax law change presents advisors with                        in tax law into marketing programs          mends that you convert before com-
a one-time opportunity to launch a                           designed to sell insurance products.        pleting such a review, odds are good
marketing plan designed to expand                            Rather, registered financial advisors       that the person he or she is focusing
                                                                                                         on isn’t you. ❖
                                                                                                                                  mc-rothcc-051611

                                                 Edelman Financial Services    RicEdelman.com     888-PLAN-RIC                                       7

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:7
posted:8/9/2011
language:English
pages:7